SolarCity Corp (NASDAQ: SCTY)
At the moment, SolarCity is one of the most heavily debated stocks on the market, and the battle between the bears and the bulls is leading to quite a bit of volatility in the market. When it comes to this argument, I'm on the bullish side of the fence. In all reality, with everything I've seen from the company, it seems as though we're going to see growth. Today, we'll talk about both sides of the argument and what I'm expecting to see from SCTY moving forward. So, let's get right to it...
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The Bearish Argument On SCTY
While I maintain a bullish opinion, I can definitely understand why it is that the bears are expecting to see declines in the market. The problem lies in the company's business model. You see, SolarCity focuses on installing residential solar systems. These systems can be quite expensive. As a result, SCTY started to offer a financing program that lifted sales in a big way. However, in order to do so, the company has had to take out massive amounts of debt. In fact, at the moment, the company is dealing with around $1 billion in debt.
The bears argue that SCTY is heading down the same road that we saw Sunedison heading down, and that, eventually, reckless actions with regard to debt can lead to bankruptcy. In fact, Jim Chanos, Kynikos Associates founder, recently stated that he is expecting to see financial trouble as early as this year from SolarCity.
The Bullish Argument
As mentioned above, I am on the bullish side of the argument here. The reality is that when you dig deeper than the debt, good news starts to appear. There are a couple of reasons that I maintain a bullish opinion on SCTY:
- Debt – The biggest concern surrounding SCTY is debt. So, it's best that we start there. Now, don't get me wrong, the company does have a relatively large amount of debt. However, this debt is not concerning to me. You see, as the company started to realize the masses of debt that it was building up, it changed its model once again to stop the bleeding and lead the way to profits; which leads me to my next bullet point...
- Protection From Risk – SolarCity brought on the massive amounts of debt it has by offering payment plans to consumers that wanted to install solar systems. However, this model simply couldn't be maintained. At the end of the day, it would lead to too much debt, and SCTY knew that. So, the company recently announced that it would be securitizing blocks of solar projects. In doing so, the company would get the funding needed from investors. More importantly, it would pass the risk associated with their unique business model down to the investors, putting the company in a strong position to grow.
- Business Model – Finally, I think that the factor that's going to make the big difference here is the business model at SCTY. You see, most publicly-traded solar companies are in the business of building solar power plants and selling the energy generated to utility companies. Sure, this model works, but it keeps control away from consumers. With the SolarCity business model, the company is focused on installing solar systems in residential areas, putting the control back into the consumers' hands. This is a key factor to keep in mind. You see, the world is shifting toward solar, and if you ask a consumer if they want control or would rather give that control to utility companies, they are going to tell you that they want control 99 times out of 100. This will lead to exponential growth in the long run.
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What Do You Think?
Where do you think SCTY is headed moving forward and why? Let us know your opinion in the comments below!
[Image Courtesy of Flickr]